Compensation - Human Resources Management

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Tyrus Woods

Human Resources Management

Chapter 10 - Compensation

Many surveys have shown that employees rank pay low in importance.  For example, a large-scale survey found that only 2 percent of Americans declared that pay is a very important aspect of a job.  Compensation is a very complicated topic with several aspects, requiring various decisions for companies to make.  Chapter 10 focuses directly on the vast array of subject areas related to Compensation.


First, Compensation is said to have three components, base compensation, the fixed pay an employee receives regularity by salary (weekly, monthly).  Pay incentives is another compensation type designed to reward employees for good performance.  Pay incentives may include bonuses and profit sharing.  Finally, benefits make up the last of an employees total compensation.  Benefits include medical, dental coverage, paid vacations, and perks such as use of the company car.

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Next, there are nine criteria for Developing a Compensation Plan. Internal Equity is the perceived fairness of the pay structures within a firm.  External equity is the perceived fairness of pay in comparison to what other employers are paying for the same job.  These two equity perceptions are referred to as the Internal versus External Equity and make up one of thee nine criteria.  Another important compensation criterion is Fixed Versus Variable pay.  Becoming more popular is variable pay based on company profits.  For example, Anderson Windows pays it’s employees up to 50 percent of their total compensation in ...

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